Blog & Press Releases

As you are aware, the UK Government is seeking support from its EU counterparts in a last-ditch attempt to secure a deal through Parliament. Most commentators think this will fail, meaning that there is now a high probability that the UK is heading for a No-Deal Brexit. Given this risk, it is imperative that Procurement functions prepare as best they can for a prolonged period of uncertainty and supply chain disruption.

As procurement and supply chain specialists, Buying Support Agency Ltd has audited countless clients’ procurement functions across many industry sectors since 2002. Yet worryingly, recent surveys show that, for the majority of UK businesses, there has been limited risk planning for a No-Deal Brexit. Even for those businesses that are preparing supply chain risk assessments, lack of internal resource means that only the most immediate (‘tier 1’) suppliers are likely to be included. This may give a false picture of the total risks – particularly if UK or non-EU based tier 1 suppliers are being reviewed.

Brexit is only one of several growing risks where exposure could bring severe economic and reputational damage, however. Other risks include cyber security, GDPR, financial risks and the need for extended legal compliance around stricter anti-slavery and anti-bribery legislation.

Buying Support Agency Ltd offers a solution to this challenge: We can provide independent, expert resources to provide detailed risk planning across a thorough breadth and depth of the entire Supply Chain using our tested approach and methodology. Our output provides our clients with a much clearer understanding of risk exposure through their extended supply chains.

In a world of change, the potential consequences of inadequate risk management are severe. For a no-obligation discussion, please call us on 01242 506970 today.

As I write this article, Prime Minister Theresa May has received the resignations of two of her cabinet less than 24 hours after having announced the joint UK-EU agreement of a draft Brexit deal. Thus it appears that the risk of a 'no deal' remains, with only a few short months remaining before the UK officially leaves the EU at the end of March 2019. Such uncertainty is hitting UK manufacturing and engineering sectors hard, hampering investment decisions and damaging staff morale.

It should be born in mind that typically 50-70% of manufacturing costs reside in their supply chains, and in 2017 £258 billion worth of goods were imported by the UK from the EU. That's why preparing for all Brexit outcomes to mitigate supply chain risks is business critical. How well prepared is your manufacturing business and how aware are you of how the different Brexit outcomes could affect your supply chains? What are the likely risks and what should be done to mitigate them?

UK Manufacturers fear the consequences of a hard Brexit; they fear the loss of client orders - a recent manufacturing sector survey conducted by Sheffield Hallam University found that 83% of UK manufacturers have confirmed they're preparing for a hard Brexit by seeking new trading relationships outside of the EU as they fear a decline in orders from over the Channel. Other impacts highlighted by manufacturers include the 20% who predict further budget tightening; 21% predict increased trade tariffs on goods imported and exported; 18% showed concern with the possible divergence in standards and legislation. And non-trade barriers such as border checks and additional admin/time to process imports and exports, together with general supply-chain disruption, are identified by 18% of those surveyed.

So let's consider the range of supply chain risks coming out of Brexit. Whilst arguably the greatest threats relate to food retail, technology and automotive sectors, most of these risks will impact on all manufacturing and engineering sectors.

1. Tariffs - the key to this is the EU 'rules of origin' for goods and services. Any product currently with 55% or more of its make up being of EU origin is deemed to be EU sourced and therefore carries zero rated tariff for EU based manufacturers. Should the UK fall out of the customs union and single market, this arrangement will be under threat. For example, the Dutch government has advised Dutch manufacturers to avoid UK components for fear that post Brexit, including UK components (legally outside of the EU) could bring their finished products below the magic 55% level. In such cases, if EU manufacturers continue to rely on UK suppliers, their finished products may no longer qualify for free trade and so will incur significant additional costs. And for UK manufacturers who send parts over to the EU for processing, because less than 55% of their origin comes from the UK, they will struggle to qualify for free trade with non-EU export countries even if the UK can mirror EU trade agreements with these countries. So they will struggle to compete on price with their foreign competitors.

2. Exchange Rates - sterling has fallen by over 20% since the Referendum result. Manufacturers should consider hedging to mitigate further currency fluctuations as import prices increase in real terms (though exports become more competitive). Procurement must assess the likely import price fluctuations and consider changing the currency in contract terms with overseas suppliers.

3. Lead times & administration burden - there has been much talk about the likelihood of congestion at UK ports and nearby roads and how this might create serious headaches for those manufacturing companies who rely on frictionless trading for their Just in Time supply. Dr Ke Han of Imperial College, London, forecasts 30-minute queues at Dover and Folkestone if there are just 4-minute checks. Supply chain and logistics managers at UK manufacturing companies must seek to understand from discussions with HMRC and their freight agents how bad such delays are likely to be, and what plans are being made to reduce these delays. Are you clear which UK ports and ferry routes are being used when importing from the EU? And are you prepared for the additional import/export clearance administration? Are your systems and staff ready for a sudden increase in customs declarations? And are you involving your supply chains in preparing for these challenges?

4. Contracts - the impact on legal contracts must be considered in good time, based on the different Brexit scenarios. Clearly there are challenges here - in a recent Chartered Institute of Purchasing & Supply (CIPS) survey, 20% of UK businesses were struggling to secure contracts that run until after March 2019. And 15% had postponed or cancelled contracts due to uncertainty. This highlights the need to evaluate all contracts to ensure post Brexit compliance, for example reflecting any legal or regulatory divergence.

Having considered the major risks facing your supply chains, how best to organise your preparation? I recommend that you map out the web of suppliers who serve your business.

This is not simply your immediate (tier one) suppliers, but tiers two and three as well. If you only consider direct tier one suppliers based in the UK, you will miss the potential risks being carried by these UK organisations should they have EU suppliers in turn. (nb: as procurement and supply chain specialists, Buying Support Agency Ltd can show you how to strategically map your in-bound and out-bound supply chains and then to develop appropriate mitigation strategies).

Should it be agreed that new (non-EU) overseas supplier relationships be explored as part of the strategic plan, you must research the possible new risks being introduced by such a move. For example, other markets have different regulatory regimes and trading with suppliers within those markets potentially increases the risks of non-compliance with UK and International law (e.g. bribery, corruption, child labour and slavery).

Adherence to the following guidelines should be considered when planning your approach to Brexit:

1. Define specific risks for your company and financial impact

2. Build a set of probable what-if scenarios and associated financial impact

3. Devise a set of strategic options

4. Develop a clear set of action trigger points - timing is key so you need to agree on when action will be taken, not just the options.

Brexit is not the only risk out there for the UK manufacturing sector; there's cyber security, increased automation as technological advances continue at pace, global trade wars, environmental climate change and political instability. With such a changeable external environment, strategic planning is crucial in giving your business the agility to adapt at the right time which will give you competitive advantage.

We can help resource your procurement and supply chain Brexit planning

Buying Support Agency Ltd (BSA) can help your manufacturing company to prepare its procurement and supply chain function for Brexit, typically as part of our independent procurement health check and risk assessment. And if resources are tight, one of our team of highly experienced senior procurement leaders in the manufacturing sector can work alongside you to develop supply chain strategies, facilitate complex tenders or provide top level guidance as you prepare your supply chains for Brexit.

We can offset our fees through your using BSA Buying Group - many manufacturing companies have used this cost reduction service, reducing utilities, packaging, freight, telecoms, workwear/PPE, travel and other overhead costs by up to 58% within six weeks.

This second blog copies the HMRC guidance note re classification of goods for import/export should there be a no deal Brexit. The notice was published on 23rd August 2018.

In the event of “no deal”, goods traded between the UK and the EU after 23h on 29 March 2019 will be subject to the same requirements as third country goods, including the payment of duty. Under World Trade Organisation (WTO) rules, the principle of most-favoured-nation (MFN) treatment means that, unless a preferential agreement is in place, the same rate of duty, on the same good, must be charged to all WTO members equally.

For UK exports to the EU, the EU will require payment of customs duty at the rate under the EU’s CCT. For goods imported to the UK from the EU, the UK will require payment of customs duty at the rate set by the UK Government.

In preparing for “no deal” businesses will want to be aware of the following:

the Taxation (Cross-Border Trade) Bill will provide the necessary powers for the UK to set its own tariff once it leaves the EU

in a ‘no deal’ scenario, trade with the EU will be on non-preferential, WTO terms. This means that MFN tariffs and non-preferential rules of origin would apply to consignments between the UK and EU

the EU will apply its MFN rates to goods imported into the EU from the UK. The EU MFN rates are set out in the CCT, where they are listed as “erga omnes” (which translates as “towards all”), rather than stating a specific country. The EU may change these rates between now and March 2019, but this provides an indication

the UK will apply its MFN rates to goods imported into the UK from the EU. The government will determine and publish these new UK duty rates before we leave the EU. They may be different from the rates in the EU’s CCT

the UK intends to continue offering unilateral preferences to developing countries, and to seek to transition all EU Free Trade Agreements for day 1 in order to ensure continuity for both goods imported to the UK, and for UK exports. Maintaining these benefits is of clear importance to businesses, consumers and investors, and will ensure a smooth transition for users of these provisions as we leave the EU. Further information on preferential trade under the UK’s existing trade agreements will be captured in the Trade Agreement Continuity technical notice

the UK Trade Tariff, detailing the import duty rates and rules that will be applicable to each good, will be made available free on GOV.UK in the same way as now. Importers of goods into the UK will no longer use EU Tariff information published by the EU

the UK does not intend to immediately change the classification of goods in a “no deal” scenario. The UK does not plan any immediate deviation from the current commodity code list published in the UK Trade Tariff, which is currently applied by the EU, except where necessary to maintain alignment with international standards, or for trade remedies purposes.

What you would need to do

Anyone importing goods into the UK from the EU, or exporting goods to the EU from the UK, will have to comply with customs procedures, where these were not previously necessary. As set out above, this includes the potential payment of duty on UK-EU trade.

Establishing A UK Trade Tariff

The Taxation (Cross-Border Trade) Bill provides the powers for HM Treasury to establish a new UK trade tariff.

The importer (or their agent) must use the guidance in the tariff to help decide the correct classification of their goods (although it should be noted that the guidance is not the legal text of the tariff). This will require knowledge of the item being classified, as well as its constituent parts: what it is made of, and the purpose for which it will be used. It will also be necessary to know where it originates from. The process of classification will result in a numeric commodity code. The commodity codes will be listed in the Tariff with the rate of import duty applicable to the goods falling within those codes (duty rates are shown either by formula or percentage of the customs value of the goods). The Tariff will contain rules for determining the amount of import duty applicable to those goods based on their description (the commodity code) and country of origin.

The Tariff will also set out import procedures such as how the value of a good is calculated, and which forms, codes, and procedures are to be used.

The UK Trade Tariff will replace the EU CCT for imports to the UK. HMRC already publishes tariff data online for use by UK traders with third countries. Those currently importing goods from third countries into the UK will be familiar with this system.

UK Commodity Codes

Commodity codes in the EU are 10 digits long for imports, and 8 digits long for exports.

Commodity codes are standardised under the World Customs Organisation’s Harmonised System for the first 6 digits of the code. The UK is, and will remain, a participating country in this system.

The Harmonised System allows additional digits to be set by Customs authorities. Tariff codes beyond 10 digits are used for some food products, to identify sugar, starch, and fat content, and for trade defence measures. The UK does not intend to immediately change any commodity codes, but the rules will be set out in new UK regulations rather than EU ones.

Classification - an example

I am seeking the commodity code for a grand piano. Searching for “grand piano” on the UK Trade tariff identifies the commodity code 9201200000 for imports (92012000 for exports).

The tariff has a hierarchical structure. The first two digits (92) are the “chapter”, and refers to Musical instruments; parts and accessories of such articles. The next two digits (01) are the “heading”, and identify pianos, including automatic pianos; harpsichords and other keyboard stringed instruments. The following two digits (20) are the “sub-heading”, and identify a grand piano.

Up to this level, the same digits are used internationally as part of the Harmonised System. Because no further distinction is required, the next two pairs of digits are each 00.

For a more detailed worked example, please see the classification section on the uktradeinfo website.

More Information

Trade Tariff: look up commodity codes, duty and VAT rates – this will replace the EU CCT for imports to the UK.

For business exporting to the EU, the EU publishes its tariff online TARIC, the integrated Tariff of the European Union. This is a multilingual database integrating all measures relating to EU customs tariff, commercial and agricultural legislation.

Here is a copy of the recent HMRC Guidance notice re trading with the EU if there is no Brexit deal. It was published on the Gov.UK website on 23rd August 2018.

Businesses importing from the EU in a 29 March 2019 ‘no deal’ scenario

After the UK leaves the EU, in the event of a ‘no deal’ scenario, businesses importing goods from the EU will be required to follow customs procedures in the same way that they currently do when importing goods from a country outside the EU. This means that for goods entering the UK from the EU an import declaration will be required, customs checks may be carried out and any customs duties must be paid.

Before importing goods from the EU, a business will need to:

register for an UK Economic Operator Registration and Identification (EORI) number. Businesses do not need to do anything now. There will be further information available later in the year. For those businesses that sign up for the EU Email updates, they will be contacted when this service becomes available

ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an importer

consider how they will submit import declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC). Engaging a customs broker or acquiring the appropriate software and authorisations form HMRC will come at a cost

decide the correct classification and value of their goods and enter this on the customs declaration. To help classify the goods correctly, the following may be useful:

HMRC publishes tariff information and guidance alongside the list of commodity codes needed to classify goods together with all the tariff rates, and measures

When importing goods from the EU, a business will need to:

have a valid EORI number

make sure that their carrier has submitted an Entry Summary Declaration at the appropriate time (see section 3)

submit an import declaration to HMRC using their software, or get their customs broker, freight forwarder or logistics provider to do this for them

pay Value Added Tax (VAT) and import duties including excise duty on excise goods unless the goods are entered into duty suspension (for example a customs or excise warehouse – a financial security will be required to cover the duty liability of the goods whilst they are being moved to the warehouse). Import VAT may also be due and more information regarding paying import VAT can be found in the ‘VAT for businesses if there’s no Brexit deal’ technical notice

once excise goods leave a customs suspensive arrangement, they may be immediately entered into an excise duty suspension regime. A business will need to declare the goods on EMCS for onward movement via a Registered Consignor. Further information on how to do this can be found in Public Notice 197.

Businesses may also need to apply for an import licence or provide supporting documentation to import specific types of goods into the UK, or to meet the conditions of the relevant customs import procedure.

Businesses exporting to the EU in a 29 March 2019 ‘no deal’ scenario

After the UK leaves the EU, in the event of a ‘no deal’ scenario, businesses exporting goods to the EU will be required to follow customs procedures in the same way that they currently do when exporting goods to a non-EU country.

Before exporting goods to the EU, a business will need to:

register for an UK EORI number. You do not need to take action now but you will want to familiarise yourself with this process

ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an exporter

consider how they will submit export declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC). Engaging a customs broker or acquiring the appropriate software and authorisations from HMRC will come at a cost.

When exporting goods to the EU, a business will need to:

have a valid EORI number

submit an export declaration to HMRC using their software or on-line, or get their customs broker, freight forwarder, or logistics provider to do this for them. The export declaration may need to be lodged in advance so that permission to export is granted before the goods leave the UK (the export declaration also counts as an Exit Summary Declaration – see section 3)

businesses may also need to apply for an export licence or provide supporting documentation to export specific types of goods from the UK, or to meet the conditions of the relevant customs export procedure.

When exporting duty suspended excise goods to the EU, a business will need to continue to use EMCS to record the duty suspended movement from a UK warehouse or premises to the port of export.

Carriers moving goods between the UK and the EU – Safety and Security Declarations

After the UK leaves the EU, in the event of a ‘no deal’ scenario carriers (for example hauliers, and train, vessel or aircraft operators) will need to make a Safety and Security Declaration for goods moving between the UK and EU. There are two types of Safety and Security Declarations: an Exit Summary Declaration (EXS) and an Entry Summary Declaration (ENS).

A carrier is generally required to submit an EXS to the customs authority of the country from which the consignment is being exported. For consignments exported from the UK the EXS generally forms part of the Export Declaration (a customs declaration).

A carrier is required to submit an ENS to the customs authority of the country that the consignment is entering.

Mitigations businesses may consider in a March 2019 ‘no deal’ scenario

Businesses should now consider the impacts on them in a ‘no deal’ scenario, which would mean a requirement to apply the same customs and excise rules to goods traded with the EU that apply for goods traded outside of the EU, including the requirement to submit customs declarations. Businesses should consider whether it is appropriate for them to acquire software and/or engage a customs broker, freight forwarder or logistics provider to support them with these new requirements.

Businesses may want to consider whether using customs procedures would be beneficial. These allow businesses to delay or relieve the payment of customs duty for goods they import into the EU until goods are ready to be released into free circulation. A customs broker, freight forwarder or logistics provider can advise in the event of a ‘no deal’ scenario whether one of these procedures would be suitable for your business. Customs procedures include the following:

customs warehousing: this allows businesses to store goods with duty or import VAT payments suspended. Once goods leave the warehouse, duty must be paid unless the business is re-exporting, or moving goods to another customs procedure. The warehouse must be authorised by HMRC

inward processing: this allows businesses to import goods from non-EU countries for work or modification in the EU. Once this has been completed, any customs duty and VAT due must be paid, unless goods are re-exported or moved to another customs procedure, or released to free circulation

temporary admission: this allows business to temporarily import and or/export goods such as samples, professional equipment or items for auction, exhibition or demonstration into the UK or EU. As long as the goods are not modified or altered while they are within the EU, the business will not have to pay duty or import VAT

authorised use: this allows a reduced or zero rate of customs duty on some goods when used for specific purposes and within a set time period.

For excise duty purposes, goods are not regarded as imported if they are immediately placed under one of these customs procedures. Businesses need to pay excise duty when these goods are released for free circulation, unless they are immediately placed in excise duty suspension.

As part of considering the potential impacts, businesses should take account of the volume of their trade with the EU and any potential supply chain impacts.

Businesses should now begin to look at the guidance for importing and exporting outside of the EU to familiarise themselves with the key processes. The UK government will provide further information on action to take to prepare for this scenario over the coming months.

As part of the government’s own preparations, the UK has applied to re-join to the Common Transit Convention (CTC) when it leaves the EU. The CTC facilitates cross border movements of goods between contracting parties to the Convention, by enabling any charges due on those goods to be paid only in their country of destination. The negotiations on the UK’s membership of the CTC are ongoing.

The UK government is committed to deliver a functioning customs, VAT and excise system that enables trade to flow, revenues to be collected and for the UK to have a secure border following the UK’s exit from the EU.

For most small and mid-market UK Companies, times have been getting steadily tougher when it comes to keeping a lid on supply costs. The UK has recently experienced significant inflationary cost pressures on imported raw materials thanks in part to the weakened pound, and the threat of import customs tariff costs grows by the day. Even if this isn't directly impacting on your business, the chances are that it's hitting much of your supply base, which will be either looking to pass some of this extra cost onto you or taking the hit and suffering financially (which ultimately ups your own risk of supply chain failure). These increased costs and risks mean that it's vital that companies have highly experienced procurement professionals in place to protect profits and mitigate supply chain risks.

Adding to the pressure, the large corporate competitors are able to leverage their size for competitive advantage. They have highly skilled procurement teams, busy developing future strategies not just to keep a lid on costs but to seize new supply innovations to make their products or services even more appealing to customers; their suppliers (some of whom also supply your company) are attracted to supply them so as to maximise sales revenues directly, and indirectly through bolster their own marketing by citing these well-known companies as clients, thereby demonstrating their credibility to prospective new clients (who may currently be served by your company).

So how can your small or mid market company enjoy similar advantages of cost/risk management, supply chain innovation and maximising your attractiveness to suppliers and clients alike? There are two challenges. First, finding high quality procurement leaders. Just as the largest companies can attract the best suppliers, so they can attract the most talented procurement professionals. With UK unemployment at its lowest for decades, procurement skills shortages make it even harder to find good people. The second challenge is that the most effective procurement leaders don't come cheap and as a smaller company you may not have the budget to attract or keep them.

So on the one hand you have an urgent need to develop an effective procurement and supply chain function, but on the other you may struggle to develop the skills or find the necessary salary budget to make the necessary change. How do you solve this business challenge?

Buying Support Agency (BSA) can solve it. We have a ready-made team of passionate procurement leaders, all with 15+ years of operational and leadership experience. They've worked in the corporate world but want a more flexible work-life balance which is why they want to work with BSA as associates. This flexibility for them is also flexibility for your business - our team tend to work with a client for typically 4-5 days per month, delivering exceptional value to the client, who avoids the cost of having to pay for all the traditional costs of having a senior level member of staff on their books. Clients have complete flexibility and can therefore expand or reduce our resource as needed. As an additional value add, all associates bring to clients completely free access to our BSA Buying Group, which enables them to quickly cut your overhead costs whilst also tackling some of the more fundamental strategic issues facing your supply chain.

Now that the UK’s GDP estimated growth figures for the first half of 2017 have been published, it is apparent that we’re experiencing an economic slowdown in 2017 versus 2016. Official figures from the Office for National Statistics estimate that the UK economy grew 0.3% in April to June 17, slightly up on the 0.2% growth seen in quarter one. This shows that the perhaps surprisingly strong economic growth witnessed immediately after the Brexit referendum has faltered significantly – the UK and Germany were the fastest growing economies in the G7 last year, but now we’re in the slow lane. Year-on-year growth has slowed from 2 percent to 1.7 percent. The International Monetary Fund (IMF) has recently revised downwards UK GDP growth for 2017 from 2.0 percent to 1.7 percent.

So why the slowdown? Well against the obvious back-drop of political and economic uncertainty caused by Brexit, and most recently, the unexpected failure of the Conservatives to secure an overall majority at the general election, it is widely predicted that the UK economy will experience less growth than would have otherwise been the case.

But we can add another dampening factor too, caused in part by Brexit – namely the recent uptick in inflation which has not been reflected in wage inflation, thereby hurting consumer spending. And weaker sterling against the major currencies since the Brexit vote has also caused import price inflation. Most economic commentators also remain concerned about the UK’s productivity gap versus the other major economies, with relatively weak investment in infrastructure and skills training. This is keeping a lid on wage inflation, as is the government’s resistance to growing calls to scrap the 1 percent public sector wage cap.

Most of the growth is coming from the services sector, which grew 0.5 percent in the last quarter (up from 0.1 percent in quarter one). But construction and manufacturing have contracted by 0.9 percent and 0.5 percent respectively.

With three quarters of the UK economy coming from household consumption, the slightly increased inflationary pressures rising faster than wages is dampening the growth forecast. This in turn will have a negative impact on businesses, many of whom are already dealing with a squeeze on margin, particularly if exposed to import prices, due to the ongoing weakness of sterling.

Expect the same in the second half of 2017

Growth in domestic consumption will only happen if businesses feel confident enough to increase wages. But it is difficult to see where this confidence will come from, given the dampening factors highlighted above – the weak pound, higher import prices, low investment in skills training, increased inflation and above all the continued lack of any certainty on how Brexit will be negotiated. Expect the UK to continue to under-perform against its major economic competitors.

How is sterling faring on the international trading markets?

The Bank of England Monetary Policy Committee (MPC) has recently voted yet again to keep interest rates at their historic low point. But the markets were taken by surprise by the fact that more members of the MPC voted for an interest rate rise than expected. Some commentators think that a rate rise may be on the cards in 2017 and this has slightly strengthened sterling in the last few days (as a rate rise would likely result in a surge in global investment funds, thereby increasing the value of sterling relative to other currencies). That said, most commentators expect the current weak position of sterling to remain stable over the next few months with nothing on the horizon expected to create a buying surge of sterling. Despite Article 50 being triggered four months ago, the markets still don’t see clarity surrounding the UK’s negotiating position and the threat of a no-deal remains. Until the market feels more certain (and positive) about the outcome of Brexit, and with the economy looking sluggish, it remains likely that sterling will mirror the weak economic position and remain weak for the remainder of 2017 and early 2018.

The only factors which may help to boost sterling, but perhaps not by a significant margin, might be external global events, such as a political shock in the US or EU caused by President Trump being impeached, say, or Merkel losing the German elections in September. Neither looks likely, but given the political turmoil experienced in the last couple of years, all bets are off. And that’s without considering China, North Korea….

How can my company protect itself against damaging foreign exchange movements?

With sterling remaining weak, increasing number of UK based companies are having to face increased import prices and reduced values of repatriated overseas revenues. This increased financial risk which needs to be mitigated. I cover some aspects of this in my previous blog relating to how procurement functions should react to the increased risks resulting from Brexit, in particular managing EU based suppliers. In terms of currency swings, a key start point is to understand not just what level of price needs to be obtained for a given product or service sale to be profitable, but also how this price level is impacted upon by currency fluctuations. Then evaluate the degree of risk the business is prepared to take in hedging that risk away, such as buying forward versus spot buying currency for example. This is where external currency specialists can help.

Which is where Buying Support Agency can now assist…

Given the currency market uncertainty, Buying Support Agency is delighted to announce the launch of two value for money services within the ‘Professional Services’ section of its BSA Buying Group.

The first is our sourcing of a multiple-award winning foreign exchange broker, meaning that members of BSA Buying Group can enjoy heavily discounted exchange rate charges, reduced still further thanks to BSA Buying Group’s buying power that could save your company money compared to your bank, with no hidden fees or charges.

Secondly, our BSA Buying Group members can now benefit from our partnership with the UK’s number one source of part-time Finance Directors. This makes it possible and practical for SME businesses to take on one of the UK’s leading Finance Directors on a part-time basis for a fraction of the cost of employing a full-time FD. These experts are well versed in successfully steering companies through volatile trading conditions, in securing funding and so forth.

For more information on either of these services, to find out how to join BSA Buying Group to access up to 24 areas of overhead cost, or to seek support in preparing your supply and procurement functions for the post-Brexit world, call 0800 254 0344 today.

With the UK triggering Article 50, now starts the challenging task of negotiating our exit in a way which delivers the best possible outcome for UK businesses.

I’d like to consider how those with purchasing and supply chain responsibilities in your business should prepare to cut the risks and seize the potential opportunities that reveal themselves through the Brexit process. Let me first consider the potential risks.

Increased market uncertainty and inflationary pressures

The weakening of Sterling against the key international currencies will make it more expensive to import raw materials. Oil prices, set in dollars, may rise due to currency movements even if your overseas suppliers are not themselves experiencing an uplift in costs.

The economic and political uncertainty risks dampening corporate and institutional investment within the UK, though a weak pound may encourage foreign investment despite the uncertainty. Lower investment could curb employment levels, thereby cutting domestic consumption and damaging UK economic growth. Should consumer demand and corporate investment fall, suppliers from the UK and overseas may seek price increases to protect their profit margins.

Barriers to travel and movement of goods to and from the EU

A further inflationary threat is the raising of customs duties and greater administrative hurdles imposed on EU goods and services being imported into the UK. Added to this is the delays caused by customs checks. UK buyers need to think about the impact on their business of lengthy delays at UK ports and increased prices.

But with risk comes opportunity. Buyers dealing with EU based suppliers can turn negative into positive by engaging fully with them to both reassure and protect the supply chains. Conversely, even if relationships with EU suppliers sour, buyers may be unaware of some highly innovative and value add supply chains in the rest of the World, including within the UK itself. Positive consequences may well result in switching to non-EU suppliers, but only if buyers can develop the appropriate alternative supply strategies.

Our 8 tips to help buyers navigate Brexit

1. Most importantly, prepare an action plan that considers the short, medium term and long term impact of Brexit on your business. Don’t put your head in the sand, thinking that Brexit won’t impact your business. No-one really knows the consequences of Brexit, and you can’t control it, but you can at least plan ahead. You need an action plan to ensure that your supply chains are both flexible and secure;

2. Audit your supply chains, looking for risks and opportunities. Classify suppliers by degree of risk to the business, and do some ‘what if’ scenario planning, involving the whole business;

3. Consider your own internal business and the risks caused by supply chain disruption. Make sure that the buyers are working alongside colleagues in other parts of the business so they can discuss risks and options for mitigating those risks. And consider the opportunities too, such as exporting outside of the EU - though moving into new non-EU markets may require changes to product specifications and the adoption of new suppliers. This will all require a lot of time and resource, hence starting the planning now is vital;

4. Review the contractual arrangements with EU based suppliers, and consider re-negotiating terms such as contract duration, break clauses;

5. Prepare for negotiations should existing suppliers press for price increases as they seek to protect margins. Resist demands for price increases unless the suppliers can provide clear evidence that their demands are genuine. Consider switching suppliers if the impact of cost inflation is too severe;

6. Start talking openly with EU based suppliers and where appropriate begin planning joint strategies to mitigate risks (remember that your suppliers will also be concerned about losing your business so will want to work with you). And keep showing your support and appreciation of your EU suppliers, as anti-British sentiment in mainland Europe could increase your risks;

7. Ensure that you have good quality supply market intelligence gathering, so you can monitor potential supply risks or opportunities;

8. Check that your internal finance and ERP systems can be adapted to reflect changes such as lengthening order to delivery lead times, greater currency fluctuations, customs duties, etc. System changes will need planning and testing in advance otherwise risks will increase. Plus review all purchasing related online or offline documentation such as purchase orders, terms and conditions, delivery notes. Will these need to be amended post-Brexit to comply with any diversion between EU and UK legislation?

Change is the one certainty

In summary, Brexit poses threats and opportunities for UK based purchasers. The one certainty is that big change in the business landscape is happening, for good and bad. It is therefore critical that you start to plan now. But there is no need to panic. By planning now, your business will be in much better shape to not only withstand any shocks but to seize upon the opportunities that will inevitably come from Brexit too.

Academies are increasingly being encouraged to protect themselves from the impending funding cuts through collaborative procurement. Whilst we're seeing a growth in such collaboration, there remain considerable barriers which are putting brakes on the trend, resulting in a fragmented picture across the UK. In this article, Matt Roper, CEO of Buying Support Agency (BSA), procurement specialists, considers how schools can overcome these barriers and take full advantage of the benefits whilst avoiding the pitfalls.

As funding cuts start to bite, Academies - particularly those not within Multi-Academy Trusts (MATs) - are vulnerable to financial difficulties if they don't tackle their back-office efficiencies, such as their management of procurement. No longer can they rely on their Local Authorities own procurement resources, as Local Government have experienced significant budget cuts themselves and are experiencing a decline in their buying power as more and more schools go it alone.

Degree of take up of collaborative procurement

A logical way of combatting the funding cuts is for every Academy to join forces with other like-minded schools, pooling resources to re-gain the economies of scale previously enjoyed from Local Authority procurement support. Many MATs are already doing this. And as well as economies of scale, schools also benefit by sharing insights into markets and supplier performance through benchmarking prices and service levels. Buying collectively puts the cluster of schools in the driving seat whereas those going it alone are less able to stand up to suppliers or compare alternative supply options from a value for money perspective. It should also be noted that the EFA and Ofsted are increasingly seeking evidence of value for money when auditing school finances.

The Department for Education's March 2016 White Paper ("Education Excellence Everywhere"), places great importance on strong financial health and recognises that collaboration between schools will play a big part in the future of academies, especially through Multi Academy Trusts, in helping schools to share expertise and reduce costs.

However, despite the obvious benefits of joint procurement there remain factors which are slowing down the take up. According to a recent National Schools Procurement Survey, carried out online by Incensu with support from the National Association of School Business Managers (NASBM) and with a sample of 106 schools, the main reason for schools not working together when procuring goods and services was a perceived lack of time (72%) and expertise. 87% thought that savings were possible from collaborative procurement but over 60% said they lacked someone who could take responsibility for facilitating the partnership of schools within a cluster; only 24% could demonstrate that they were already working jointly with other schools. So clearly the majority have yet to benefit from collaborative working.

Some schools surveyed didn't see shared procurement as being a priority - perhaps because they see most of their budgets being spent on staff wages, pensions, and so forth. But whilst this is true, across the UK schools spend £9.2 billion on non-wage costs such as energy, catering, cleaning and back-office costs. And whilst funding is falling, it will be challenging for schools to be able to make significant in-roads into their staff salary costs. There is already a shortage of quality teaching staff, and this combined with inflationary pressures, constant pressure on exam results performance, and even Brexit, will make it unlikely that cutting salary costs will make up the funding gap in many schools. As the pressure mounts on budgets, more Academies will need to focus on back-office efficiencies and lower supplier costs.

Those surveyed did however come up with suggestions as to how this barrier could be removed. These included the setting up of a formal framework, freeing up time and providing training e.g. collaborative procurement, legal issues, contract performance management. It was also suggested that suppliers could do more to encourage schools to procure together rather than as individual customers.

Types of collaborative procurement models

There are various collaborative models available to Academies. At the simplest end of the spectrum is the informal cluster - where procurement isn't shared but ideas and issues are shared and discussed; then there is the contractual collaboration where two or more schools create a joint contract - though a formal agreement must be signed between the schools; next comes joint committees; the most formal arrangements include setting up an umbrella trust, a joint venture company or a MAT. Each option has advantages and risks, and should be considered based on the needs of the individual schools within the group.

How to make a success of collaboration

Ensuring that collaboration delivers maximises commercial benefit requires an investment of time on the part of each school participating. Given that the majority of Academies cite lack of time as the key barrier to collaboration, then it is important to make the engagement process as time efficient as possible.

Before deciding on the approach, and which collaboration model to develop, it is crucial to consider a number of key questions; all stakeholders must recognise the time investment and be prepared to allocate such time consistently – if one school feels it has the lion share of the work load, the collaboration will soon collapse; everyone must agree on what is to be jointly procured and the priorities; there must be clarity about the outcomes of joint contracting and the benefits to all parties; what the legal implications are of the collaborative model being adopted and the need to comply with the Public Contracts Regulations (see section below); what funding requirements will there be on each school in the group; what happens if one school wishes to withdraw from the arrangement, or a new one wishes to join an established group?

Other critical success factors include the need to establish a clear and realistic vision and business case; maintaining good communication with all stakeholders; setting clear targets; establishing sound governance arrangements; remaining sensitive to the different needs of each school within the cluster and listening to any staff concerns about job security.

Regardless of whether an Academy decides to collaborate with others, it must realise that poor procurement decisions and a failure to comply with EU procurement legislation can result in legal challenges from suppliers, contracts being cancelled and financial penalties which can be costly, time-consuming and impact negatively on the school’s reputation.

Academies are deemed to be ‘contracting authorities’ because they receive their funds predominantly from the tax payer via the Education Funding Agency (EFA). This means that they must comply with the Public Contracts Regulations (2015) when contracting higher value goods, services or building works. ‘Higher value’ will depend on what is being procured – for goods and the majority of services this is £164,176; for building works contracts it is £4,104,394 and for social and other specific services (including education, catering) it is £589,148. If the total contract value of the spend (i.e. not just one year’s spend – you’re not allowed to artificially disaggregate a large contract into smaller sections to bring it below the threshold) exceeds these thresholds then the tender has to be advertised across the EU and EU Procurement Regulations must be applied.

Where clusters of schools can go for assistance

One way of cutting down the amount of time needed from each school is for the group to take advantage of ready-made procurement consortiums or buying groups. More Academy Trusts are showing interest in buying organisations, not only for large scale contracts such as IT and classroom equipment but also for more complex services such as building management and professional services. As Academy Trusts expand, their supply chain needs will be less served by the local supply base.

These buying organisations have significant buying power and will already have spent the time vetting suppliers, seeking invitations to tender, completed the competitive tendering process and set up supply frameworks which comply with EU Procurement Regulations. Organising EU compliant tenders take up a lot of resource which Academies may not realise.

The contractual terms will also have been negotiated favourably on schools behalf. Plus should anything go wrong with the contract the schools will have the support from the purchasing consortium who set up the framework.

Utilising these resources will mean your cluster won’t need to have legal or commercial expertise and can save the group having to tender itself. In short, why re-invent the wheel? The best consortia also provide contract templates and training, helping to share insights when procuring educational supplies and services.

Price and value benchmarking is another benefit of utilising purchasing consortia. By comparing prices and value prior to going to tender, Academies can see the opportunity for total cost savings and this can help prioritise which cost categories to tackle.

Examples of professional buying organisations in the public sector include the Crown Commercial Service (CCS), Pro5, Crescent Purchasing Consortium and EduBuy. In the private sector there are several alternatives, including the company which I lead - Buying Support Agency Ltd (BSA). BSA operates a Buying Group ideal for spends under the EU Procurement spend thresholds, plus it can offer cluster procurement support for higher value tenders and benchmarking.

To maintain enthusiasm and to justify the resource, the school cluster needs to see a decent return on investment and hence identifying and then targeting those cost categories likely to secure the greatest level of cost savings and service level improvements is critically important. But the value benefits are clear. One recent example is the National Church of England Academy Trust (NCEAT) which led a procurement for insurance services on behalf of five academies. NCEAT used the Pro5 Insurance Services framework agreement (RM958) and saved over £40,000 on their previous year’s premium and brokerage fees.

Conclusion

As funding is squeezed across the education sector, and the traditional sources of procurement support (i.e. local authorities) declines, Academies are being forced to evaluate ways in which they can save money. Once a school has made its own efficiency savings, the most effective way to achieve significant further economies is to combine with other schools and to consider outsourcing certain back-office functions.

The good news is that schools can already draw on excellent practice within other schools which have already organised themselves into collaborative clusters and via a wide range of training, tendering tools and supplier frameworks delivered by public and private sector organisations.

If you’re on the School Management Team or a Governor at an Academy Trust or individual Academy and want to find out more about collaborative procurement and external procurement support that is available, please contact Buying Support Agency Ltd (tel: 0800 254 0344)

So the UK has finally triggered Article 50, formally initiating our divorce proceedings from the European Union. Now begins the extremely challenging task of negotiating our terms of departure to deliver the least negative consequences for the United Kingdom and the remaining 27 members of the EU.

From a procurement perspective, I’d like to consider how procurement functions in both private and public sector should prepare over the next couple of years and beyond to mitigate the risks and seize the potential opportunities out there. First let’s consider the possible impact on public procurement law.

Procurement Procurement Legislation

The UK implemented the Public Contracts Regulations 2015, Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016 which all make up the EU Public Procurement rules. These laws seek to ensure transparent competition whilst ensuring non-discrimination on the grounds of nationality. Whilst on exit (but not before) the EU Procurement Directives will cease to apply, the UK version of these rules will continue to be applied in law unless and until the UK repeals them. The Great Repeal Bill lays out how this hugely complicated process will happen.

Why the existing Procurement Laws in the UK are likely to remain

The extent of legislative change surrounding public procurement may well depend on the outcome of the Brexit negotiations relating to trading. However whatever the outcome, I expect the existing procurement laws in the UK to remain broadly the same (though without the need to demonstrate cross border interests being considered) for the following reasons.

If we have a ‘soft’ Brexit

If the UK agrees to a ‘soft’ Brexit, it will leave the EU but will either remain part of the Single Market (unlikely, if Theresa May’s sticks to her recent comments) or perhaps the European Free Trade Agreement (EFTA), it will remain bound by the existing EU Procurement Directives anyway.

If we have a ‘hard’ Brexit

If on the other hand the UK takes the ‘hard’ Brexit line, and doesn’t sign multiple bilateral trade agreements with each member

of the EU, it will likely to become a member of the World Trade Organisation (WTO). The WTO has its own procurement rules, laid out in the Government Procurement Agreement (GPA) which it requires members to adhere to. The GPA requires that its members treat suppliers from other member states as favourably as domestic suppliers, as well as ensuring transparency and impartiality. And many developing countries have adopted EU Procurement Regulations as a blueprint for their own procurement rules, in order to reassure funders such as the World Bank.

Other reasons for status quo

First, the current UK Government will remain focused on cutting public spending and seeking value for money across all government departments. Removing the key principles of public procurement law could result in a potential loss in competitive challenge and innovation, resulting in poorer value for money for UK taxpayers. It should be added that the elements of procurement law relating to supporting SMEs in public sector bidding and the opportunity for bidders to challenge public and utility procurement decisions would be difficult to repeal without an outcry from UK business due to the perceived negative impact on fairness and transparency.

Secondly, with so many complex legislative changes required to be made in a relatively short period of time, I think that there will be little urgency to simplify the public procurement rules in the short to medium term. Any adjustments to public procurement legislation would require significant consultation across large numbers of public sector and industry bodies. Bear in mind that significant consultation happened prior to the most recent changes in EU law. Any deviation in public procurement law will also add complexity to UK companies sourcing from EU supply chains.

Increased currency market volatility and inflationary pressures

Whilst the view is that legal changes to UK Public Procurement are unlikely to be significant, other factors will have an ongoing impact on procurement and supply chain management. The current political and economic uncertainty risks dampening institutional and corporate investment within the UK. The consequence of lower investment could be a fall in employment levels, thereby cutting domestic consumption and damaging UK economic growth. Procurement departments must evaluate how they should respond to these threats.

One early challenge for procurement is the weakening of the Sterling exchange rate against the key international currencies. Whilst this is good news for exporters, it also means a higher risk in the medium term of increased import costs (e.g. raw materials, oil prices which are priced in dollars), even if their overseas suppliers are not themselves experiencing an uplift in costs.

Barriers to travel and movement of goods to and from the EU

The tightening of UK borders is likely to increase the time taken to ship goods and increase the administrative burden of moving goods and people to and from the UK to EU Member States. One example of this would be the introduction of security checkpoints and customs posts between the Republic of Ireland and Northern Ireland. It could also create political tensions.

And add into the mix the risk of Scotland voting to become an independent country outside of the United Kingdom, now that the SNP has secured a mandate from the Scottish parliament for a second independence referendum. The consequences of independence would be far reaching and procurement on both sides of the border would have to manage the new complications involved in managing cross border supply chains.

A further inflationary and logistical threat is the raising of customs duties and additional administrative hurdles imposed on EU goods and services being imported into the UK. UK buyers need to think about the impact on their business of lengthy delays at UK ports, or the introduction of a land border between Northern Ireland and the Republic of Ireland. When we experience delays at ports caused by French strikes at Calais it hurts UK companies but only happens infrequently. Imagine if such delays became the norm.

Re-evaluation of existing suppliers

With UK companies under pressure to maintain profitability and protect cash flow, buying departments will feel the heat from their Boards of Directors to keep a lid on these inflationary pressures. This will in turn force procurement to re-evaluate their existing supplier relationships, particularly those suppliers based in the EU, and to consider other non-EU supply options to mitigate risks for their organisations. It may encourage buyers to consider contracting with alternative suppliers in other parts of the World, though this introduces other risks, such as delays in logistics due to increased transport distances, cultural differences, new language barriers, new currency dealings, commercial laws which may differ from EU law, and so forth.

Procurement professionals will not only need to consider their own concerns but must also be sensitive to the concerns of their EU suppliers who may themselves wish to re-evaluate existing trade with UK customers. Trade is after all a two-way street. If the nationalist movement continues to flourish (as demonstrated by the Brexit vote), or if anti-British sentiment develops after a difficult Brexit process, some EU based manufacturers and service providers could decide to re-focus their energy on selling to EU member states and away from the UK market. Other economic and legal factors could also dampen the enthusiasm of our EU neighbours to export to the UK. This could include a significant deviation in UK commercial law versus EU law over time, a continued weak pound relative to Euro, administrative barriers such as import border checks and paperwork, UK imposed import tariffs. Any of these factors could result in lower profit margins or lower UK demand, which in turn may result in inflationary pressures or a fall in supply to the UK.

So sourcing is likely to become more of a challenge from the UK’s perspective. UK buyers will need to keep a close eye on their existing EU suppliers to spot any change of approach as early as possible, and to build a contingency and costings plan for switching supply out of the EU if supplier relationships become more challenging within the EU.

But with risk comes opportunity. Buyers may be currently in a comfort zone with certain EU suppliers, blissfully unaware of some highly innovative and value add supply chains outside of the EU in the rest of the World, and even back here in the UK. If Brexit forces buyers out of their comfort zones, some positive consequences may well result, but only if buyers develop the appropriate alternative supply strategies. And they will need to work closely with their colleagues in sales, operations, quality assurance and so forth to ensure that the non-EU sourced alternative products and services are fit for purpose for the needs of their client base whilst complying with UK law.

A shrinking supply of cheap labour and increased wage costs

Cost pressures will grow in those industry sectors reliant on cheaper labour recruited from overseas, such as construction, hotels and hospitality, food production, contract cleaning and logistics, if these people leave the UK. The government will be under pressure to show that they have cut immigration numbers as this was a key reason for voters choosing to leave the EU. Yet UK companies will still need to employ resources and if there is a skills shortage they will have to either pay more to recruit new staff. Buyers will be under pressure from recruitment agencies who may decide to increase their fees if staff search costs rise or who pass on higher wage demands.

And the pool of talented procurement staff may well diminish if migrant numbers are cut. What impact will this have, and what plan can be developed to safeguard talent within the organisation?

Change is the one certainty

In summary, Brexit poses both threats and opportunities for UK based procurement people. And in the short to medium term it also brings uncertainty. The only certainty is that big change in the business landscape is going to happen, for good and bad. It is therefore critical that procurement starts to plan now, even though much is unclear, otherwise they are likely to miss the biggest opportunities and be more vulnerable to supply chain risks and cost increases. They must review their existing EU supply base and regularly assess the degree and risk of cost increase, time delays, relationship tensions. And they must consider new alternative sources of supply outside of the EU (or even within the UK) and weigh up the risks versus rewards of switching.

Watch any television news programme, read any newspaper, and you could be forgiven for thinking that the world is increasingly in a state of chaotic change and heightened risk. Examples include changes in consumer buying behaviours caused by technology (e.g. Uber), the current political and economic instability (e.g. Brexit, Syrian civil war), the early signs of the negative consequences of global warming (e.g. more flooding and extreme weather events), the explosion in frequency of cyber attacks (e.g. TalkTalk), grass root revolt against the institutions and wealthy (e.g. Brexit, the rising popularity of extreme left and right wing politicians).

The unethical behaviour of many businesses have contributed to these growing pressures. There is growing social revolt against company wealth being kept by a tiny proportion of the population, and growing corporate tax evasion at a time when government debt has been rising, public services have been crumbling and real wages have been stagnating at best. Added to this is the growing threat of climate change, environmental challenge and animal extinctions, caused in part by irresponsible, inefficient or unethical business practice.

To begin resolving these threats, all companies have a duty to evaluate and manage their impacts of doing business on society and the environment. With the dual threats of being named and shamed on social media and increasing legislation, companies will fail if they don't take positive action quickly.

One such action is for procurement functions within organisations to focus their efforts on mitigating supply chain risks caused by these global changes. My concern, having audited countless procurement departments over the last 15 years, is that too many procurement departments remain stuck in the same old cycle of fixating on cost reduction and thus reducing its value within and outside the organisation, including tackling supply chain risk management and sustainability. This is perhaps not surprising given that procurement tends to be measured by how much cost saving it has achieved. Measuring the degree of risk mitigation, environmental impact or innovation is less easy to measure, and often isn't measured or even talked about.

Companies that allow their procurement teams to purely focus on cost reduction are missing a trick which could come back to bite them at a later date. Procurement can (and should) have arguably the greatest leverage within a business to making things happen within supply chains for the good. Examples of action include adding ethics into supplier evaluation criterion pre contract award; challenging marketing to cut the need for energy-hungry packaging; sourcing energy efficient, eco business supplies; cutting waste through supply chain partnerships; evaluating the potential impact on suppliers of political/economic shifts at a national, regional and global level.

For Boards of Directors worrying about the potential impact of global change on the health of their companies, now is the time to provide leadership to their procurement teams, building procurement strategies that not only start to address the external threats, but on a more positive note, position the company's supply chains to seize the opportunities that are also there to be taken. By doing so, they will be making a positive difference not just to their own companies but also to their communities and the planet. It's time for business and procurement leaders to step up to the plate. Don't worry, just take action.